Feb 3, 2009

Mktg - P&G: Value Messaging Will Drive Growth

Elaine Wong

In an earnings call with analysts today, P&G chief financial officer Jon Moeller said the packaged goods giant would continue focusing its advertising on the value message, while cutting costs internally to deal with current economic pressures.“We have strong plans at discount channels to win, [which includes] performance-based value messaging across all touch points, [such as] on air, on packaging and in-store,” as well as coupon offers, Moeller said.P&G has also implemented a cost-cutting strategy that involves eliminating senior management staff and reducing the coloring used in packaging to help the company save up to $50 million a year, said Moeller.For the second quarter ending Dec. 2008, the company saw net sales dip 3 percent to $20.4 billion, compared to the year-ago period. While organic sales grew 2 percent due to price increases, the figure is still smaller than that posted by household goods rival Kimberly-Clark, which earlier this week reported an organic sales growth of about 5 percent.But while P&G is growing slower than rivals, it also has a larger portfolio to manage, said J.P. Morgan analyst John Faucher. “They need to figure out how to get some of their brand momentum back. In certain categories, they are doing well, but in general, they are growing at a slower rate,” Faucher said.Nielsen Monitor-Plus shows P&G’s ad spending is down 8 percent to $2.99 billion from January to November 2008, versus the same period in 2007. (This excludes online spend.) CEO A.G. Lafley said going forward the company would focus on maintaining its “share of voice.” The strategy involves purchasing more advertising at a lesser cost. “What matters is share of spending, but more importantly, share of delivery to consumers in the marketplace,” he said.On the retail front, P&G saw consumers trading down among brands within their portfolio: from Tide to Gain, from Pampers to Luvs, and from higher-priced Charmin and Bounty to basic versions of the products. “There is no doubt that in this environment, consumers are looking for value. In many cases, value comes with innovation and higher price points,” Lafley said. One example of innovation that consumers are willing to trade up to is Always Infinity, which has been on the market since October. The product gained a six percent value share, despite being priced at about 60 percent above premium.Private label continues to be a threat, but its penetration really depends on the category, said Loran Braverman, an equity analyst at Standard & Poor’s New York office. In segments like toothpaste, for instance, “it’s relatively low. In batteries, it’s very high,” she said. “As long as [consumers] believe [a product] is really doing something important for them, they’ll buy it."